Revised mortgage loan provisioning, risk weightage and loan-to-value guidelines will hurt.
A cap on loan to value and tighter provisioning and risk weightage for higher ticket size loans and dual rate (teaser) loans by the regulator Reserve Bank of India (RBI) and National Housing Board (NHB) is expected to dampen demand as home-buyer costs increase even as higher provisioning will pinch margins and profitability.
Loan to value for loans above Rs 20 lakh is capped at 80 per cent and at 90 per cent for loans below this amount. This change is expected to increase the borrowers equity by 50-100 per cent, observes a Kotak Institutional report. This along with rising rates and sharp increase in real estate asset values will dampen demand (especially speculative) to an extent.
Wth rising real estate asset values and a rising rate cycle, RBI has come down hard on high ticket loans. Dual interest (teaser) loans, where the interest rate starts low but is reset upwards at a later date. The risk weightage for loans above Rs 75 lakh has been increased to 125 per cent irrespective of LTV from 75-100 per cent earlier, linked to LTV. This move will push up interest rates by 100-125 basis points (bps), as per Kotak estimates, which will impact demand even more in this segment.
Also, provisioning costs for dual rate loans have been reset to 2 per cent (from 0.4 per cent for banks (standard asset provisioning) and nil for housing finance companies, which did not carry standard asset provisions against retail home loans). Although the central bank has mandated this for all loans outstanding under the dual rate schemes, the impact is expected to be marginal for banks (around 5 bps). Dual rate loans make about 8 per cent of ICICI Bank’s housing loan book (about Rs 4,000 crore, around 2 per cent of total loans) and under 2 per cent of SBI’s total advances, according to Edelweiss research.
Dual rate loans are 27 per cent of HDFC’s advances to individuals. LIC Housing Finance (LICHF) has a similar proportion, but with an additional 5-6 per cent of loans under its five year fixed rate scheme that may not be classified as teaser loans, says Kotak research quoting management inputs. This will necessitate about Rs 380 crore of incremental provisions for HDFC and Rs 200 crore for LICHF.
HDFC will not need incremental provisioning as it will absorb this through its excess provisioning buffer, LICHF will require incremental provisions of about Rs 80 crore, a 6 per cent hit to estimated financial year 2011-2012 pre-tax profits.
This puts the focus squarely on funding costs as liquidity continues to be tight and expected to stay in a deficit mode. Strong CASA franchises are the preferred play in this environment, say analysts.
